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Not Your Grandfathers CPA Firm

Is anything the same a hundred years later? Only the CPAs’ skills and credibility.

BY RANDY MYERS

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Del Lienemann Sr. knew an opportunity when he saw one. So when the
25-year-old accountant set up his own shop in Lincoln, Neb., in 1945,
he made a conscious decision to specialize in providing tax and
bookkeeping services for small Main Street business owners. Back then
those clients often were snubbed by more established firms because
“auditing was the primary business of the average accounting firm at
that time,” he says. “Income tax and bookkeeping services were
by-products.”

Upon graduating from the University of Nebraska in 1942, Lienemann
had started out at a 10-person accounting firm. It wasn’t unusual for
some small-business clients to get January financial statements in
July, after the auditing work for bigger clients was completed—and he
just didn’t think that was fair. Small businesses looked forward to
knowing how they were doing and had no way to ascertain their position
except to watch their bank accounts.

A lot has changed at the typical accounting firm in the 60-some
years since Lienemann—the 179th accountant to earn the CPA credential
in Nebraska—first hung out his shingle. But then, quite a lot had
changed in the preceding 40 years, too.

IN THE BEGINNING:1905–1940 In 1905 the public accounting profession in America still was
very young. Just nine years earlier, New York had passed the first
state law to regulate the practice of accounting and establish the CPA
credential, and by 1904 only six other states had followed suit. In
big cities the largest and most important engagements generally went
to British firms such as Price, Waterhouse & Co., which had
established beachheads in the United States. But fledgling domestic
firms were gaining ground, and—as yet unfettered by regulations
against advertising—were eagerly courting the accounting business of a
growing nation.

Their practices were limited compared with those of their British
peers. They centered on audits and investigations, according to
Richard Brown’s 1905 A History of Accounting and Accountants
(reprinted in 2003 by Beard Books, Washington, D.C.). Three
decades would pass before publicly traded companies would be required
to have their books audited, although many companies were obliged by
their investors and bankers to submit to the exercise anyway.

The early 1900s office. A typical CPA at work
in the early 1900s would have been surrounded by wood—wood paneling,
wooden desks, chairs, storage drawers and “pigeon-hole” cabinets for
filing papers. The technological centerpiece of the office was its
Burroughs Registering Accountant, a mechanical adding device that
debuted in 1892 and was commonplace in American business by 1910. To
use it, operators pressed number keys, then pulled and released a
lever on the side of the machine to record and add a figure to the
running total. To perform multiplication and division, there might
have been a rudimentary, nonprinting calculator known as a Comptometer
or a more expensive printing calculator known as a Comptograph.

Although a well-equipped office probably included a typewriter, most
reports were written in longhand. Communication with clients was
getting easier, though. Candlestick telephones were catching on, and
soon the automobile would supplant the horse, greatly increasing
mobility. (Henry Ford launched the Model T assembly line in 1913;
three years later he was producing more than 500,000 vehicles a year.)

Office dress was formal and would remain so for many decades to
come. The profession was exclusively white and male, although women
were employed in support roles. Brown notes that one by-product of the
mechanical adding machine was that large numbers of salaried men
employed for their ability to tally four-digit numbers in their heads
lost their jobs to lower-paid workers—primarily women—equipped with
adding machines.

REACING MATURITY: 1940–1980 By the time Del Lienemann joined the accounting world, the
profession was maturing. State licensing was widespread and about
30,000 CPAs were in practice across the country. Audits of public
companies had become mandatory with the passage of the Securities Act
of 1933 and the Securities & Exchange Act of 1934, which further
institutionalized the auditor’s role in the life of the nation’s
business affairs. State accountancy boards had buttressed the
professional status of public accounting with prohibitions against
advertising and competitive bidding, as had the AICPA (through its
predecessor organization founded in 1887) by adding similar language
to its code of ethics.

Still, the tools, technology and public face of accounting looked
much as they had at the turn of the century. “Everything was formal.
You came to work in a suit,” Lienemann recalls. “The only equipment I
needed was a typewriter, an adding machine and a calculator, which was
worthless to check anything because it didn’t have a printer.”

Public accounting still was dominated by white males. Of the nearly
27,000 CPAs working at the end of the 1930s, only eight were African
American, reports author and accounting professor Theresa Hammond in
A White-Collar Profession: African American Certified Public
Accountants since 1921 (University of North Carolina Press,
2002). It would not be until the 1970s, with changing public mores and
passage of the Civil Rights Act in 1964, that African Americans would
gain a material, if small, role in the profession. As late as 1969, in
an eye-opening article in the JofA, Bert N. Mitchell reported that of
100,000 CPAs, only 150 were African American (see “
Seven Voices From the Profession ”).

Women would enjoy greater success in breaking into the profession,
although until the 1970s a female CPA still was a rarity. AICPA board
member Bea Nahon, who runs a small firm in Bellevue, Wash., recalls
that when she joined a midsize CPA firm in Seattle in 1975, shortly
after graduating from college, she was one of the first two women ever
hired for anything other than a support or bookkeeping job.

Through the ’70s the tools used by the typical CPA remained
rudimentary. Nahon recalls being outfitted with a desk, a chair and an
adding machine. Had she wanted a calculator, her employer would have
contributed $50 toward its purchase. Many of the everyday items she
and her peers used would have been as at home in a child’s toy box as
in an accountant’s desk drawer. CPA Carolyn Sechler, who today employs
Internet technology to operate a “virtual” CPA firm from a guest house
behind her Phoenix home, recalls using “13-column paper, pencils,
wiggly rulers and a calculator.” CPA Jim Metzler, AICPA vice-president
for small firm interests, worked with “mechanical pencils, a giant
nine-key adding machine, columned pads and colored pencils” when he
joined the profession in 1970.

Much of the work done by accountants of that era was tedious and
time-consuming, and long hours were common. “You worked when your
employers thought you needed to,” recalls Bill Balhoff, CPA, CFE,
audit director for Postlethwaite & Netterville in Baton Rouge, La.
“Today we have people who want to leave the office by 5 p.m. every
day. In 1976 that would have been frowned upon—at least 15% overtime
for the year was expected.”

Then as now, incoming accountants typically cut their teeth on
auditing work. Suits and ties remained the standard uniform for men,
skirts for women. But radical change was in the offing.

THE TECHNOLOGY TEAR: 1980–PRESENT In the 1980s technology transformed the accounting profession
along with the rest of the business world, although it would be
misleading to say it was embraced with enthusiasm. The retired IBM
sales executive Hal Topper, who was instrumental in pushing computers
into the profession, recalls that as recently as 1989, the level of
technological expertise among accounting firms “was in a God-awful
state. The only ones worse were lawyers.” Big business had begun using
IBM tabulation machines as early as the 1950s, but computers wouldn’t
find their way into small businesses—including the typical CPA
firm—until well after the debut of the Apple II personal computer in
1977; VisiCalc, the first electronic spreadsheet, in 1979; and the IBM
PC in 1981.

Once CPAs accepted computers, their productivity increased
dramatically; vast quantities of data were more easily entered,
manipulated and stored. “When I started in business in 1945, my
practice consisted of me and a secretary in 360 square feet of space,”
recalls Lienemann, who, though he has passed control of his firm on to
his son, Del Jr., still goes to the office regularly. “Today we have
2,500 square feet of space but only three CPAs and two secretaries,
plus some part-time help during tax season. Without computers, we
would easily have a staff of 12 to 15 people.”

Recently, of course, the Internet and wireless technology have
revolutionized the CPA firm again, releasing accountants from the
physical ties that bound them to an office and allowing them to
replace in-house libraries with online reference materials they can
access from desktop or laptop computers. Visionaries such as Sechler
have leveraged this technology to the extreme. Rather than lease an
office in a commercial building when she went into business for
herself in 1994, she established a Web site for her clients and works
from her home office. She subcontracts work to other professionals,
who similarly work from their homes. They “talk” during the day via
e-mail and instant messaging. Sechler migrated her clients to
QuickBooks Online so she can access their financial records via the
Internet at any time. This lets her keep tabs on their performance and
address problems as they surface, rather than waiting until year-end.

Technology hasn’t just changed the way CPA firms operate, it’s also
changed what they do. With the widespread popularity of do-it-yourself
software, many small businesses now do their own bookkeeping and
payroll—bread-and-butter business for CPAs throughout much of the 20th
century. But this has freed some CPA firms to offer clients
higher-value services, including strategic planning, succession
planning, business valuation, litigation support, retirement plan
management and even technology consulting and information technology
audit work.

WHAT WE'VE GAINED—AND LOST In one sense today’s CPA firm is remarkably like those of 100
years ago. It is small in terms of the number of people it employs,
and its primary mission is service—auditing and income tax work for
the small business client. It is a more casual environment than it was
a century ago, but the business of financial reporting remains serious
and vital to the economic health of the country.

While few veteran accountants miss the tedium of working with pencil
on paper, many recall fondly the days before cell phones, pagers,
personal digital assistants, e-mail and instant messaging, when work
couldn’t follow them home or on vacation. Although many firms have
embraced a healthier work/home-life balance, the profession still
thrives on hard work and occasional long hours. It is far more diverse
by gender—women now account for about 31% of AICPA members—and by
color, if not as fully on the latter score.

Some changes are lamentable. Many CPAs say that allowing advertising
and competitive bidding have made public accounting a less collegial
profession. “I miss a lot of the camaraderie and closeness in the
local chapters and state societies,” Metzler says. “It was more
buddy-buddy between firms,” agrees Balhoff, when they weren’t vying
for each other’s clients. Relationships with clients lasted longer,
too. “There are a lot more one-time projects today,” Balhoff says.

Young accountants coming out of college generally are better
prepared and have a broader education, many CPAs acknowledge, but that
development has not come without trade-offs. “Their education is much
more technology- and thinking-centered vs. mechanically centered,
which in many respects is a good thing,” says Richard Caturano,
president of Vitale, Caturano & Co. in Boston and chair of the
AICPA’s PCPS Executive Committee. “Sometimes the basics escape some of
these people, but the advantages outweigh the disadvantages.”
On-the-job training, always a big part of the profession, has changed,
too. “Firms today are giving a little more training to new recruits
than we got 30 years ago, and it’s more often Web-based. The subject
matter is different, too. Thirty years ago, senior accountants and
managers were trained solely on technical issues; today, a lot of
firms are training on softer issues such as leadership, selling, and
managing and motivating people—all skills you need to be a successful
CPA.”

CPAs who have been practicing for decades cite the technology
revolution of the past 25 years, the growing diversity of the people
who serve as CPAs and the broadening range of services that firms can
offer as important changes in the profession. But the most significant
change, they say, is one that occurred just three years ago: the
passage of the Sarbanes-Oxley Act. Prior to that it had become
commonplace to hear accountants discuss how auditing had become the
forgotten stepchild as the profession eagerly repositioned itself to
take advantage of other, more lucrative opportunities.

“The single most significant part of Sarbanes-Oxley is the renewed
emphasis on the quality of auditing,” Caturano says. “The trend away
from auditing importance has been totally reversed in a very short
period of time. The profession has gone back to its roots.”

The regulatory uproar that followed the accounting scandals also
led, of course, to the creation of the Public Company Accounting
Oversight Board, another significant development. “It moved us from
being a self-regulated profession to being very much a
government-regulated profession,” says CPA Steve McEachern, managing
partner of Fitts Roberts & Co. in Houston and chair of the AICPA’s
PCPS Technical Issues Committee.

TODAY AND TOMORROW The most important issues
confronting CPA firms today, practitioners say, are the ongoing
fallout from Sarbanes-Oxley, which has overburdened firms that serve
public companies and cascaded work down to smaller firms, and the
question of whether the country should have separate accounting
standards for public companies that file with the SEC and for
privately held ones that do not. “We’re at a crossroads on this
issue,” Nahon says. “There is compelling evidence that the accounting
principles promulgated by the FASB have become more and more focused
on public registrants and the third parties who use that information,
and that that information has become less relevant and less
cost-effective for small firms to produce.” At the same time Nahon is
concerned a second set of standards might be mistakenly seen as less
rigorous.

Whatever the outcome of that debate, CPAs believe the pace of
technological and regulatory change will alter the nature of the
typical CPA firm over the next 10 or 20 years. Specialization will be
even more imperative, Nahon says. Sechler predicts small firms will
get the opportunity to operate around the world, thanks to technology,
converging international accounting standards and increasing
globalization of clients’ businesses. Metzler envisions a world of
virtual CPA firms that will need offices only to handle the occasional
client meeting. Everything else will be done paperlessly, through
wireless devices over the Internet. “We’ll spend all our time at our
clients’ offices working with them—not in our own offices crunching
numbers,” he says.

Roman Kepczyk, CPA/CITP, president of InfoTech Partners North
America and chair of the AICPA’s IT Executive Committee, envisions a
world in which CPAs will identify anomalies and clean them up in real
time. “Instead of doing monthly look-backs at data, CPAs will have
their fingers on the true pulse of information as it’s happening,” he
predicts. “Firms doing advisory work will be able to check in on their
clients every day; dashboards will allow us to look at the full health
of our clients’ accounting information systems, identify trends and
make recommendations.” Using XBRL-formatted data, software will
automate so much of the bookkeeping and accounting process that
information for income tax returns will flow directly to them, already
organized. “The CPA will be doing a review as opposed to creating a
whole tax return,” he says. Ultimately, says Metzler, clients will not
prepare a tax return, they’ll simply receive a tax bill from the IRS.

Caturano’s vision is less futuristic but equally intriguing—and
perhaps more reassuring. “When you look inside a CPA firm in 10 or 20
years,” he says, “it’s going to be the people who are different more
than anything else, with more minorities, many more women in
leadership positions and more emphasis on flexible schedules and
work/life balance.”

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